Selling Condos to Nations: a Matter of Diplomacy
David M. Halbfiner - The New York Times
When Mitchell B. Rutter bought 2 Dag Hammarskjold Plaza a year ago, he entered a strange new world where sovereign immunity, geopolitical alliances and hints of corruption counted for as much as the usual factors that make a real estate investment succeed or fail.
That’s what happens when you sell off a building’s floors to tenants with names like Greece, Portugal and Bahrain.
Along the way, Mr. Rutter even had to decide where he could accept an island in the Pacific, instead of cash, as payment.
Mr. Rutter, the president of Essex Capital Partners, bought 2 Dag Hammarskjold Plaza, on Second Avenue between 46th and 47th Streets, in May 1996 for $12 million from the Jamaican Mutual Life Assurance Society. The Jamaican Government, once the major tenant, had left several years earlier, and the building, a block from the United Nations, was nearly vacant.
Mr. Rutter said he had no trouble deciding to convert the building’s 15 floors to condominiums and to market them to members of the United Nations. Before deciding to sell the building, Jamaican Mutual had prepared a condominium plan, which had drawn interest from Morocco and Greece, but the insurer never acted on the plan. And Louis R. Buffalino, the broker in the sale to Mr. Rutter, also represented the Government of Portugal, which was looking for office space.
The condominium plan made sense because foreign nations do not have to pay property taxes when they own, but they do pay a share of the taxes when they rent, Mr. Rutter said. And leasing the building’s 15 floors, each with 6,450 square feet, simply was not an option, because a government’s sovereign immunity “cannot be waived,” and he would be too much at risk, he said.
“It’s like rent control. If they stopped paying rent, not only could I be in danger of not collecting, but the ground they occupy is foreign soil. I’d probably never get possession back.”
For the same reason, Mr. Rutter had to turn down several entreaties from countries seeking to buy floors if he’d lend them the money. “We could’ve done even better on price if we were able to give financing,” he said.
Micronesia, the tiny Pacific island nation, went so far as to offer one of its islands as a swap for a floor in the building, he said. “I gave them my lender’s number and said, `Why don’t you call the lender and see if it counts against the mortgage?’” he said. Officials at the Micronesian permanent mission to the United Nations fid not return a telephone call yesterday.
Mr. Rutter said that matching his buyers with specific floors in the building became an exercise in diplomacy—literally. Once he decided to sell three floors to Greece, he knew he was closing the door to Turkey, its longtime antagonist. And when both Bahrain and Morocco expressed interest in the top floors, Mr. Rutter said, the two nations’ prime ministers held a parley by telephone to settle who had first dibs on the penthouse. (Bahrain won.)
The sales effort also proved a bit of an education in the ways of the rest of the world, Mr. Rutter said. For example, twice, a country’s officials toured the building with one real estate broker, then returned later with a different broker who also was a citizen of the same country. In both cases, Mr. Rutter said he refused to let the officials back into the building, fearing the second broker would pay a kickback to the buyers.
Another country’s ambassador, he said, asked Mr. Rutter, because of budget constraints, to sell him space in the building at a price markedly lower than the $225 to $250 per square foot he has been getting. “But he was willing to have me overcharge him the difference on the construction, if we built out his pace,” Mr. Rutter said.
To those without diplomatic immunity, the building isn’t exactly a landmark. At 15 stories, it doesn’t even break into the Manhattan skyline. Architecturally, its mirrored, black glass façade was state-of-the-art 26 years ago.
But the building is well known to U.N. dignitaries as the home of an exclusively duty-free shop where diplomats can buy costly perfumes and Hermès ties at deep discounts. And the building’s small floors lent themselves easily to the permanent missions and consulates of smaller countries.
All that was missing, Mr. Rutter said, was an owner who could act quickly.
The result? 2 Dag Hammarskjold Plaza is nearly sold out, he says, and he could clear $21 million in profit for his year’s work.
By contrast, Mr. Rutter estimates that the Jamaican insurance company, which bought the building from the developer Harry Macklowe, lost about $20 million on its sale to Mr. Rutter.
Eric Rosedale, a lawyer representing Jamaican Mutual, declined to comment, but Mr. Buffalino, its broker, said the building had been largely vacant since the Jamaican government left for other quarters several years ago. He added that several of the insurer’s employees were fired last year for their handling of its overseas real estate.
Mr. Rutter began negotiations soon after Mr. Buffalino of Insignia/Edward S. Gordon Company, told him that the building was available in March 1996. But the Jamaican insurance company appeared to drag its feet after both sides agreed on a price of “just below $12 million,” Mr. Rutter said.
So he took the most recent draft of a contract, wrote in the changes he felt he needed, and raised the price to a full $12 million. “I sent a certified check for $1.2 million, with the contract, to a lawyer I’d retained in Jamaica— a former justice of the highest Jamaican court,” Mr. Rutter said. “And I had him hand deliver it over to the individuals in charge at the insurance company.” Mr. Rutter said he figured the jurist’s involvement would make the insurance company’s officers “take me more seriously.”
Mr. Rosedale said, “It was more the money than the messenger,” though he said Mr. Rutter was “intelligently aggressive on this deal.”
Either way, Mr. Rutter said, “They signed the contract and deposited the check.”